Maurice Spector

The Collapse of the New Deal

(June 1938)

From New International, Vol.4 No.6, June 1938, pp.173-175.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

FIVE YEARS HAVE passed since the inauguration of the New Deal and what is the celebrated State of the Union? The level of industrial production in March of this year stood at 37 per cent below last year’s. Production plunged from 1929 to 1933 levels, in the brief span of a single year, a feat the Hoover Administration took three years to chalk up. Quoted stock values on the New York Stock Exchange were reduced by $27,000,000,000 in the course of a year. Steel is working at 30 per cent capacity. The purchasing power of the farm dollar is 25 per cent less than a year ago. The ranks of the unemployed have swollen to thirteen million. AH in all, it would seem, a singularly inappropriate moment for the Public Papers and Addresses of Franklin D. Roosevelt to appear! The five volumes successively bear these titles: The Genesis of the New Deal, 1928-1932; the Year of the Crisis, 1933; The Advance of Recovery and Reform, 1934; The Court Disapproves, 1935; The People Approve, 1936. The conclusive sequel to this apotheosis was furnished rudely and without permission of the Brain Trust, by history in 1937.

The precipitous economic decline is relegating the myth of the New Deal to a place alongside its predecessor, the illusion of the New Era (1923-29). The economic millenium of Harding and Coolidge seems now pre-glacially remote. But dewy-eyed pilgrims from the European social-democracy once came questing to those shores for the secret of eternal prosperity. The installment plan promised to go on world without end, the nearest thing under capitalism to the just-pluck-yourself-a-banana economy of the South Sea islands. The supply of American heiresses for noble transatlantic studs loomed as inexhaustible. The learned professors proclaimed the permanent annulment of the business cycle. Poor Marx was triumphantly demolished as a sour German Jew, an exploded Hegelian, or charitably, as another eminent Victorian. It was the Golden Age, Peterkin, and a man named Lovestone explained it as “American exceptionalism”. At the Moscow Congresses of the Comintern, the American communist delegates basked in the reflected glory of their bourgeoisie, masochistically proud of the strength of American imperialism.

Until there came a day in the chill autumn of 1929, when leaves were sere and pedestrians trod warily to avoid colliding with brokers leaping from the topmost flights of Wall Street skyscrapers. American capitalism crashed. While the extreme left of society had been predicting this in a general and routine way for years, the actual event found them perhaps no less incredulous and unready than the Union League Club. In the momentous period of 1929-1932, wages sank 60 per cent, salaries dropped 40 per cent, and dividends 57 per cent. Industrial paralysis created an army of 15,000,000 unemployed and 30,000,000 people were thrown on private or public charity.

The “Roosevelt Revolution”

Whatever difficulties historians may have assessing Roosevelt’s place in history, there can be no doubt that he did manage for a time to salvage capitalism. On the morning of his inauguration, the entire banking structure of the country had broken down and the masses were on the verge of hunger revolts. The Reconstruction Finance Corporation, which Roosevelt inherited from Hoover, took over the functions of Wall Street, pumping billions of dollars into every kind of financial and industrial enterprise, railroads, banks, insurance companies. By the close of 1934 there were 25,000,000 on relief. The country was put on a colossal dole.

In 1934 steel-rail production was 1,008,000 tons as against 408,000 in 1933. But of the 600,000 ton increase, the government lent the railroads the cash with which to buy 425,000 tons.

“The steel industry, the automobile industry, every industry that has been boasting about its better business in 1934 got that better business out of Federal funds paid out to its customers,” wrote John T. Flynn. “These industries are on the dole ... Their employees are on the dole ... The stockholders who have been getting the rising dividends and the bondholders who have been getting their continuing interest are on the dole too.”

But the “Roosevelt Revolution” claimed more than that it had put America on relief. It promised that it would plan reform and recovery.

“Yes,” boasted Roosevelt in his Charleston speech in 1935, “we are on our way back, not just by pure chance, my friends, not just by a turn of the wheel, of the cycle. We are coming back more soundly than ever because we are planning it that way, and don’t let anybody tell you differently.”

The nature of New Deal planning was quickly established. It was an attempt to curb the productive forces, by restriction of output and subsidizing scarcity. It was organized sabotage for the purpose of creating an artificial shortage. The Agricultural Adjustment Act was essentially a measure to restrict farm output. The NRA swept aside the obstacles of the anti-trust laws.

Big Business was not originally averse to “planning” and actually took a big hand in framing the NRA. In 1932 industry had suffered losses of probably not less than $8,000,000,000 and was thoroughly panic-stricken. In reply to a questionnaire of the US Chamber of Commerce in 1932, ninety per cent of the replies declared in favor of economic planning. The Chamber wanted to eliminate “the evils of unrestricted competition”, modify the anti-trust laws, and regulate wages and hours by trade associations under NRA supervision instead of by statute. Big Business wrote the codes. Stabilizing industry meant stabilizing its largest units. Monopoly profits rose. Big Business was perfectly willing to accept all the state subsidies, loans and guarantees necessary. It had no objection to HOLC and the various farm credit instruments where the government took the risk and secured the mortgage-holder, the banks and insurance companies. 1435 manufacturing and trading companies quickly increased their net profits from $640,000,000 in 1933 to $1,051,000,000 in 1934, or 64 per cent. But once profits were restored Big Business demanded an end to government encroachment, a return to untramelled exploitation.

The New Deal is primarily a petty-bourgeois attempt to rescue capitalism by the methods of social reformism. If the present Stalinist effort to mobilize the masses in support of the New Deal is treacherous, no less false was their first characterization of the New Deal as fascist. Certainly the New Deal contains elements common to all capitalist state-planning and Roosevelt represents the Wall Street bankers in the general sense that he aims to preserve capitalist property. But. it must be remembered that the social-democracy at different times also attempted to “control” capitalism by these methods. Examples are available from the experience of Australia, Sweden and other countries. Essentially based on the demands of the middle classes for reform, security and control of the natural resources, and with the organized labor movement in tow, the New Deal is the American equivalent of the Popular Front, social reformism sans a social-democracy. Section 7a of the statute requiring the codes to grant labor the right to organize and bargain collectively was conceived as a counterweight to Big Business.

The same fate which has overtaken social-democratic coalitionism, labor governments and Popular Fronts has caught up with the New Deal. Economic planning without attacking the profit system itself, must either lead to the iron rule of the monopolies, or create greater disproportions and chaos. Planned economy on a socialist basis involves creating a balance between production and consumption on an ascending scale by control of investment. It would mean control of production and prices, consumption, wages, profits, and income, of the output of capital goods and consumption goods, capital accumulation and investment, of agriculture and industry. The New Deal could prime the pump but could not control the flow of investment, a control impossible without abolishing capital claims and profits. Tugwell, Berle, Frankfurter and the other Brains thought they could have planned economy without the messiness of revolution. While capitalism was still licking its wounds, they would sneak up behind and before it could say Robinson, they would knock it senseless into a managed economy. That a change of property relations, of ownership was necessary was in Berle’s view a Marxist prejudice. Under the corporate system, he contended, ownership didn’t count – it was too dispersed. Management exercised control over production. Therefore it was easier to make demands on this “control group” than to put a government machine in place of it. Damn clever these Harvard boys!

Recovery – Diminuendo

The short-lived New Deal recovery proved an illusion. The Roosevelt Administration spent $20,000,000,000 trying to pull capitalism up by its bootstraps.

“It has actually spent more money in five years,” moans the New York Times, “than was spent in the aggregate by all the administrations that have governed this country from the days of George Washington to the days of Woodrow Wilson ... Yet the business of the country has been subnormal three-fourths of the time.”

The fact of the matter is that there never was any recovery in the sense of an expansion of capital. There was a restoration of profits and a temporary stabilization at a lower level. In the past, capitalist prosperity depended upon the increasing output and absorption of capital goods; under the New Deal capital secured its profits by restriction. The New Dealers were no doubt equally aware that normal recovery starts from an increase in private investment but it was hoped that after government spending had sown the seed of the upswing, increased demand from private sources would replace pump-priming – and so make an honest woman out of the recovery. But when government expenditures were cut in the hope of balancing the budget, the upswing stopped dead. Private capital failed to “take up the slack”.

Every depression before 1929 had ended with a recovery that carried economic activity to a point above the pre-depression level. Crises were once a means of actually advancing capitalist production. But when the Roosevelt recession set in, production was still ten per cent short of the 1929 level. The most striking feature of the present crisis has been the complete stoppage of industrial development. There is no parallel for this in American economic history. New Deal expenditures served to prop up the sagging foundations of capitalism but not to restore its progressive economic force. Formerly capitalism surmounted its crises and restored prosperity because of increasing opportunities for accumulation. Today the productive forces are already too highly developed for the fetters of the wage system. The Brookings study showed there was an unused capacity to produce goods of over 20 percent in 1929 and yet 20,000,000 families had incomes below $2,000. But unused capacity exists under capitalism because its use is unprofitable. Most important fact of all is that the New Deal could not solve the crisis for the simple reason that its roots are international. The loss of foreign trade is directly bound up with the world crisis. Recovery in the case of the United States, as of every other nation, depends upon the restoration of markets for normal export trade, and this prospect is more remote than ever. Every capitalist State is placing increasing obstacles to the international division of labor and trade expansion. Since the end of the World War there has been simultaneously a great increase in the process of industrialization and of barriers to economic intercourse. Incessant economic warfare has been waged since the armistice, a warfare that is now rapidly turning to military means for the solution of the world market problem.

The Social Crisis

The American crisis is thus no longer merely a cyclical fluctuation but a state of decline, ruling out all prospects of a new period of genuine expansion or durable stability. It is a social crisis, a crisis of the social order itself, involving all classes, and every aspect of economic activity. The present depression is a stage in the development of this permanent crisis in the economic and social relations of American capitalism. This by no means excludes the possibility of a revival but one brief and fitful, on a lower level, and yielding to a fresh catastrophe and more grinding depression. What is the last wisdom of the New Dealers in the face of the most recent slump? Precisely the same program of pump-priming that has already failed and is at most a form of relief, chiefly a matter of PWA lending and granting activities. Paul Y. Anderson, a friend of the Administration comments:

“The country will be fortunate if half this sum [the new PWA appropriation of $1,465,000,000] is spent by this time next year. The amount is too small to have a decisive effect on the national economy.”

Even if industrial production were again to rise to the 1929 level, we have Harry Hopkins’ assurance that the number of the unemployed would remain between six and a half and seven and a half million. The increasing rise in the workers’ output means their progressive displacement in railroading, mining and manufacturing, a displacement that, in the absence of industrial expansion, tends to become absolute.

The development of the crisis through its various stages, recurring upswings and precipitous declines, must have a searing effect on the consciousness of the American masses. The revolutionary movement will not have to wait for success until the American workers’ standard of living has reached the depths of the German or Italian. American Marxists have in general been overcautious in estimating the solidity and power of American capitalism. There is, of course, no justification for rushing to the conclusion that American capitalism can be knocked down with a feather. But there undoubtedly has been a tendency to overestimate its staying power and to be dazzled by its facade.

The masses themselves are evidencing less and less their old confidence in capitalism. Twenty-five million Americans have been on relief, millions more on other forms of government bounty. American farmers have been evicted and foreclosed, overturned milk trucks and battled the sheriff. The jobless have invaded and occupied the precincts of the legislatures. The ex-servicemen have marched on Washington. The middle classes, their security gone, have been in a state of ferment. The Townsend movement, the Epic movement, Share the Wealth movement, Father Coughlin, are all signs of a changing attitude towards capitalism. The American working class has staged the unprecedented wave of sit-down strikes, in violation of capitalist law and order. They have shown the most impressive ingenuity and militancy in struggle. All this vast radicalization is proceeding under conditions of world crisis and imperialist preparations for war.

There exists an undeniable gap between the objective revolutionary conditions and the political consciousness of the masses. How to help bridge that is the crucial problem of the revolutionary party. The older forms of revolutionary propaganda and agitation for the socialist goal combined with daily agitation for minimum demands realizable within the framework of capitalism, have been outlived. The proportion of the total wage bill to the total value of manufacturing output in the United States has been growing progressively smaller. During nine years only of this last third of a century do available records of the wages and cost of living of 22,000,000 employed workers show any marked improvement. During the whole period from 1890 to 1918, the index numbers of real earnings moved within a range of only eight points. Under the conditions of capitalist decline, with the output of capital goods and capital accumulation moving downwards, unemployment and lower wages reduce still further the worker’s share of the national wealth. If in the period of capitalist expansion the welfare of the masses lagged behind the development of the productive forces, today successful resistance to exploitation is impossible without coming into conflict with the barriers of capitalism. Even the struggle for the so-called immediate demands must take on the character of a struggle against the confines of capitalist law and order (sit-down).

The situation therefore demands that the revolutionary Marxists develop a program of revolutionary transitional demands which will at once impress the masses with their essential realism as an answer to their immediate requirements and at the same time present a revolutionary challenge to capitalism. The failure of the New Deal must lead to deeper ferment and disillusionment of the masses with half-way measures and mere reformism. In growing despair, the middle classes may become more receptive to the demagogy of fascism. The sharpening class struggle will undoubtedly lead capitalism to subsidize reactionary violence against trade union movement, crush strikes, and suppress civil liberties. The imperialist war preparations will likewise be used to fetter working class freedom of action. Nobody can foretell the exact speed of events, but nobody has the right, in view of the catastrophic developments of the American scene in the past two decades, to count on an even and gradualist course of the class struggle. The big, immediate task of the revolutionary Marxists, therefore, is to discover America.